Thursday, May 11, 2006

The Federal Reserve System

The Federal Reserve System, often referred to informally as the Fed, is the central banking system of the United States of America. The Federal Reserve System was created by Congress and signed by President Woodrow Wilson on December 23, 1913 when they passed the Federal Reserve Act written in chapter 3 of title 12 within the United States Code (Board of Governors of the Federal Reserve System 1). The United States Constitution gives Congress the power to regulate commerce between states but in the Federal Reserve Act, Congress gave the power to make monetary policy to the Federal Reserve System (Wilson 501). The Federal Reserve System is run by the Federal Reserve Board which consists of seven members who are appointed by the president of the United States and approved by the Senate (Wilson 500). Each member is limited to one term which lasts for fourteen years unless removed for cause by the president (Wilson 500).

The Federal Reserve System includes twelve central Federal Reserve Banks (Board of Governors of the Federal Reserve System 48). The Federal Reserve Bank prints all the nations’ money and is the only bank with the authority to do so. The twelve Federal Reserve Banks are essentially a bank for banks and for the federal government. Banks and other financial institutions hold accounts in the Fed for the same purpose one would hold a personal account in a regular bank. The banks and other financial institutions can write checks, electronically transfer funds, and save money in an account at the Fed. The National Government under the United States Department of Treasury holds their accounts in the Federal Reserve Bank (Financial Services 1). The Fed provides the Treasury with all their financial needs which include redeeming government securities, lending money, and holding their accounts. However, the Federal Reserve is much more then just a bank.

The Federal Reserve System is run like any other corporation in America, with a Board of Governors named The Federal Reserve Board. There are four aspects to the basic structure of the Federal Reserve System. First is the Federal Reserve Board, which makes the decisions and directs the actions of the Federal Reserve System. Second is the Federal Open Market Committee (FOMC), which includes the members of the Federal Reserve Board. The FOMC makes all decisions and policies as they relate to open market operations in the financial system in America. Third, in the basic structure of the Federal Reserve System are the twelve Federal Reserve Banks. The twelve Federal Reserve Banks have their own autonomous board of directors which consists of five to seven members. These boards are responsible for the supervision of the day to day operations of the Reserve Bank and making recommendations on monetary policy. Fourth, in the basic structure of the Federal Reserve System are the member or primary banks that do business with the Fed (Federal Reserve 1).

The Federal Reserve System, run by the Federal Reserve Board, “was intended to be little more than the coordinator of the activities of the Federal Reserve banks created by the Federal Reserve Act” (Whitnalt 239). The Role of the Federal Reserve Board has expanded over time to include many other areas: conducting the nation’s monetary policy, supervising and regulating banking institutions, maintaining the stability of the United States financial system, and providing financial services to depository institutions. The Federal Reserve is also involved in economic research, economic education, and community outreach.

“The term ‘monetary policy’ refers to what the Federal Reserve, the nation’s central bank, does to influence the amount of money and credit in the U.S. economy. What happens to money and credit affects interest rates (the cost of credit) and the performance of the U.S. economy” (Federal Reserve 1). The goal of the Federal Reserve’s monetary policy is to maintain price stability, manage inflation, and sustain economic growth achieving full employment (Beckhart 1). The way the Federal Reserve implements its monetary policy is through open market operations, setting the discount interest rate, and setting the reserve ratio.

Open market operations are the way the Federal Reserve Board maintains the money supply within the economy (Federal Reserve 1). All decisions of open market operations are decided by the Federal Open Market Committee which consists of twelve members; the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents (Federal Open Market Committee 1). The presidents serve a one year term rotating between the twelve Federal Reserve Banks but the New York Federal Reserve President always sits on the board because all open market operations are done at this branch (Federal Open Market Committee 1). The reason it is called open market operations is because the Federal Reserve Bank does this business with twenty two member banks called primary dealers. All the primary dealers hold accounts in the Federal Reserve Bank.

Through open market operations the Federal Reserve Board either temporarily or permanently increases or decreases the money supply within the economy. The way the Fed temporarily alters the money supply is through either buying or selling previously issued U.S. Government securities for a designated amount of time. To increase the money within the economy, the Federal Reserve in New York will buy securities from a primary bank and deposit the funds for the purchase in the account of that bank held at the Federal Bank for a designated amount of time. This will increase the money reserves for that bank until they have to settle the account with the Fed and buy back the securities it earlier sold them. Temporarily having more reserves in their account at the Fed will allow them to lend out more money to the American people, thus increasing the money supply within the economy. To decrease the money supply within the economy, the Federal Reserve Bank of New York will sell securities to a member bank. For payment, the Fed withdraws the funds from the account of that bank held at the Fed effectively decreasing the reserves of that bank, which in turn limits the loans that bank can give.

These transactions are called repurchase agreements (repos) when the Fed temporarily increases the money supply in the economy; and they are called reverse repos when they decrease the money in the economy. The term of the repo can last as long as sixty five days and as little as one day but typically they are either over night or fourteen day repos. The way the Fed permanently alters the money supply is through outright transactions. There are very similar to repos in every way except for these transactions are permanent not settled after a designated amount of time. The Federal Open Market Committee through open market operations tries to maintain a stable economy that neither rises nor decreases too rapidly or slowly.

“There is nothing that the fed can do to guarantee that our economy will grow at a healthy pace or that it will provide a job for everyone who wants one. However, the fed can create an environment that is conducive to economic growth. The fed does this by pursuing a goal of price stability – that is, by maintaining inflation at a rate that does not affect business or household spending decisions” (Federal Reserve Education 1).

The Federal Reserve directly sets the discount rate, which is the rate the primary dealers pay to borrow money from the Federal Reserve Bank (Wilson 500). The Fed can lower the interest rate to boost the economy or raise the rate to stabilize it. The Fed, in most circumstances, does not increase or decrease the discount rate by more than a quarter of one percent or half of one percent in order to keep the economy from extreme movements. Although the Fed does not have direct influence on the interest rates other banks charge, they can influence the rates of other banks through open market operations. The Open Market Committee through open market operations of buying and selling money affects the interest rates. When the Federal bank buys U.S. Government securities and credits the primary dealers account at the fed, the primary dealer has higher reserves which allow it to lend out more money (Board of Governors of the Federal Reserve System 11). This creates downward pressure on the federal funds rate, which is the interest rate the primary dealers charge other banks they do business with, which in turn will free up banks to set lower interest rates on loans and other rates in the economy. The opposite is true when the Federal Bank sells U.S. Government securities and withdraws the funds from the primary dealers’ account. This lowers the amount of money they can loan to the other banks they do business with, effectively decreasing the money in the economy which increases interest rates.

The Federal Reserve Board in its attempt to regulate monetary policy manages the laws regarding the reserve ratio. The reserve ratio, which is conceptually related to fractional-reserve banking, is the amount of money that banks have to keep available in order to satisfy demands for withdraws (Reserve Requirement 1). Banks are only required to keep a fraction of what they receive for deposit in order to loan out the rest for interest. The theory behind fractional-reserve banking is as follows: not everybody is going to try to withdraw their money at once, therefore, there is no reason to hold all the money (Federal Reserve 1). In order to make a profit, the banks will loan out the money they receive on deposit for interest, and then pay the depositor a lot less interest for the money deposited. The Federal Reserve Board regulates what percentage the banks have to keep on deposit with a minimum required reserve ratio. According to wikipedia.org, currently in the United States the minimum required reserve ratio is ten percent (Reserve Requirement 1). Though they rarely change quickly, over time the Federal Reserve Bank can increase the money supply in the economy by lowering the percentage required to be held for fractional-reserve banking. Likewise the Fed can decrease the money supply in the economy by increasing the percentage required to be held for fractional-reserve banking, thus reducing the amount banks can loan out.

The Federal Reserve Board in the Federal Reserve Act was given the power not only to make monetary policy but also to regulate and supervise banking institutions. The Federal Reserve Board has the power to make the laws the banking institutions have to follow as well as take charge of enforcing these laws. The twelve Reserve Banks follow these laws and supervise all primary banks, all financial institutions, and international institutions that do business with the United States. The Fed is in charge of

“establishing safe and sound banking practices; protecting consumers in financial transactions; and ensuring the stability of U.S. financial markets by acting as lender of last resort. The common goal of all three duties, however, is the same: to minimize risk in the banking system” (Federal Reserve Education 1).

The Federal Bank is also the insurance agency of the smaller banks in order to protect the American people. If a bank is in trouble financially and in need of a loan, the Federal Bank will loan that bank money so that it will not disrupt the entire banking system. The Federal Banking Board is given these powers in order to maintain a stable federal banking system in the United States.

The Federal Reserve System is the central banking system of the United States of America and has a vital part in keeping the financial aspect of our society running and growing. The significance of the Fed is that it is responsible for maintaining the nation’s economic growth through the powers granted it in the Federal Reserve Act. The Fed is directed by the Federal Reserve Board, which is full of highly educated individuals who walk a tight rope balancing all the intricate details that can swing an economy in one direction or another, trying to maintain economic growth. In order to accomplish this, the Federal Reserve Board has the power to conduct the nation’s monetary policy, supervise and regulate banking institutions, maintain the stability of the United States financial institutions, and provide financial services to depository institutions. The Federal Reserve implements its monetary policy through the Federal Open Market Committee which makes all decisions regarding open market operations, sets the discount interest rate, and sets the reserve ratio. Finally, the Federal Reserve Board through the Federal Reserve Act was given the power to regulate and supervise banking institutions through making the laws the banking institutions have to follow as well as enforcing these laws.

Sunday, January 08, 2006

Can you Prove God Exist? By Nicholas Blanchette

There are two types of arguments used by philosophers to prove the existence of God; the a posteriori arguments, which are known as the cosmological argument, and the teleological argument; and the a priori argument which is known as the ontological argument. The a posteriori arguments are based on our experience of the world and reasoning back to prove there is a God. The a priori argument is not based on our experience of the world but on our understanding of a hypothesis to see that it is true.

The Five Ways written by Thomas Aquinas, also called the Cosmological Proof is one of the oldest and most popular arguments for the existence of God. The Cosmological Proof argues that God exist by saying that there is a universe and something must have caused. The Watch and the Watchmaker written by William Palley, a leading evangelical apologist, argues the existence of God using an ontological argument. This argument states that if one finds a watch in the woods they would not conclude that it has just happened but was made by a watchmaker. Similarly, the universe has the appearance of order and design, therefore there had to be a maker, which is God. Both of these philosophers profess a belief in the God of the Bible and that they have proven that he exist through their arguments.

These philosophers have fallen short of their goal to prove that God exists and have contradicted themselves. Belief in the God of the Bible, as Paul says to Festus in Acts 26:25 is "true and reasonable", but can not be proven visually because that would contradict the Bible. I intend to show all who believe in the Bible that there is no way one can ever prove there is a God with Relations of Ideas but only as a Matter of Fact. Relations of Ideas are discoverable through reason without dependence on anything in the universe. Matters of Fact have no concrete evidence to be displayed in order to prove it to be true, therefore there is still room for a skeptic to doubt.

The skeptical philosopher believes that one can not know any matter of fact. To a skeptic, for one to say he knows "X" is true there are three conditions; "X" has to be true, he must believe it to be true, and he has to show some evidence. If I drop a ball one million times and say I believe if I drop this ball again it will have the same result, fall to the ground, a skeptic would still not believe it. I think the ball will fall to the ground and believe it to be true, and have the evidence of it happening the million times I tested it without fail. Yet the skeptic still does not believe it to be true because he says there is insufficient evidence. He will believe it only when I drop the ball and it hits the ground that million and first time deeming that sufficient evidence.

Trying to prove God as a relation to an idea is a contradiction to what the scriptures teach. Hebrews 11:6 (NIV) says that "without faith it is impossible to please God, because anyone who comes to him must believe that he exists and that he rewards those who earnestly seek him." Hebrews 11:1 (NIV) says "faith is being sure of what we hope for and certain of what we do not see." Faith as defined in the dictionary is "Belief that does not rest on logical proof or material evidence." Jesus says to Thomas in John 20:29 (NIV) "Because you have seen me, you have believed; blessed are those who have not seen and yet have believed." Faith in God is a fundamental aspect to a relationship with him. If one were to logically prove that God exist, with material evidence that would go against what is needed to have a relationship with him therefore could not happen. A priori arguments for this reason could never prove the existence of God.

A posteriori arguments have been criticized by Hume, Kant, Mill, Edwards and many others to show that this argument is not a proof of the existence of God. I intend to use the Bible to show that this argument can not prove the existence of God. A posteriori arguments are based on our experience in the world. Hebrews 1:2 (NIV) says "in these last days he [God] has spoken to us by his Son, whom he appointed heir of all things, and through whom he made the universe." God made the universe through his son therefore God is outside the universe. How can one prove that God exists using our experience in this world if He is outside the universe? God is not limited by the laws of nature but created them. No one can prove that God exist as a relation to an idea to a skeptic because it is unbiblical. A skeptic who does not believe that the sun will rise tomorrow because there is not enough evidence, is not going to believe that God exist from the testimony of Jesus.

The way the Bible teaches to believe in God is through faith in Jesus and the testimony of the eye witness accounts of his life and the evidence one sees in his life changing as a result. Jesus made some extraordinary claims that he was the one and only son of God. He was not the only one to have made such claims so what made him stand out from the crowed? The evidence he showed was fulfilling the prophecies that were spoken years before and rising from the dead. The proofs of these things are the words of the eye witness accounts of these events. The proof today is the effect that comes from believing in Jesus' words and putting them into practice. This is not enough proof to a skeptic but God himself has said that not everyone would believe in him. We accept man's testimony, but God's testimony is greater because it is the testimony of God, which he has given about his Son. 1 John 5:10 "Anyone who believes in the Son of God has this testimony in his heart. Anyone who does not believe God has made him out to be a liar, because he has not believed the testimony God has given about his Son."

These Philosophers have not proven that God exists, as a relation to an idea because if they did that would contradict the God they are trying to prove exists. All the proofs of God are matters of fact and can be doubted by a skeptic. There is no way one can prove God exists, as a relation to an idea because belief in God requires faith. There are many common things we believe in today with as much or less evidence. According to a skeptic there is no evidence the sun will rise tomorrow or that gravity will keep us on the earth. Call me naive, but I believe that the sun will rise tomorrow. I believe that if I throw a ball it will fall back to the ground. I believe that France is still on the earth, even though I have never seen it. I believe in the words that Jesus spoke, that there is a God and he exists.

In The Ethics of Belief, the author argues against Pascalian Wagers and belief in God through faith calling it unethical because it comes from insufficient evidence. Clifford argues that belief in anything on insufficient evidence is unethical, even if the belief turns out to be right or true. He believes the decision to believe without patient investigation or by suppressing doubts is unethical because it leads to wrong actions. These actions are what some people believe to be wrong, and not the belief. Clifford argues it is the belief that caused the actions, and that is wrong. Clifford's whole argument can be summed up with this main point against the rational belief in God; "It is wrong always, everywhere, and for anyone, to believe anything upon insufficient evidence" (133).

Clifford's ethics of belief are to examine the evidence on both sides of the argument with the utmost patience and care with an open mind so not to be biased. He also claims the following: a true belief has some influence on our actions. No belief is a private matter but affects everybody around the man who holds it. No belief is without effect on the fate of mankind no matter how insignificant, trivial, or ridicules it is or however unimportant the man holding it is. Therefore every time someone believes anything with insufficient evidence, they danger society by weakening their ability to think, question, judge and learn from evidence.

I do not think Clifford's Ethics of Belief proves that faith in God is irrational. The main point of Clifford's argument says, "It is wrong always, everywhere, and for anyone, to believe anything upon insufficient evidence." What is sufficient evidence? How much evidence is needed to be sufficient enough? How does one know he has enough evidence to make the ethical decision? Is a man qualified or competent enough to know he has enough evidence to make the right decision?

Let's say the ship owner hired an expert to inspect his ship to see if it was sea worthy, and this expert said that it was. It didn't erase the doubts in the ship owner's mind because of a dream he had of the ship going down the week before. The ship owner felt pressure to send the ship out from his business partners, because they didn't want to lose any more money on the ship being docked. So the owner, who wanted a more thorough inspection of the ship, felt the pressure from his business partners and with supposed sufficient evidence from an expert sends the ship out. It sinks killing all the innocent people on board. Would the ship owner still be guilty? He still suppressed doubts in his mind of what he believed to be sufficient evidence, and sent the ship to sea. Only, the doubts were supposedly irrational because they were based on a dream he had a week before of the ship going down. The expert he hired said the ship was sea worthy.

The ship owner in this story would have met the requirements Clifford has set for an ethical decision. Clifford would say this man is not guilty because it is not whether the believe turns out to be true or false but that it's the origin of his belief that make it right or wrong. This would not change the remorse the ship owner feels now who felt he knew in his heart that the ship was going to sink. Let's change the story a little and say the ship owner did not send the ship out to sea but got another expert opinion that said that the ship was not sea worthy. Both are experts, but they have different opinions. This could continue with a dozen experts, six saying that the ship is sea worthy and the other six saying that it is not. How patient of an investigation does the ship owner need to have to be sufficient? Wouldn't the difference of opinion of twelve experts make for even more doubts in one's mind? What should be done now, Clifford? This happens every day in the American court system, were the prosecution and defense attorneys find experts in the same field of study that have two different opinions. On what grounds should one entertain such disparate beliefs? What is sufficient evidence?

Clifford says that no man can be unbiased if he holds or even wants to strongly hold on to a belief on one side of an argument. Clifford himself believes that nothing is too big that human understanding can't figure it out rationally. He believes that everything can be figured out through careful and patient investigation of all the evidence. At one time rational men believed that the sun revolved around the earth because they observed the sun rising in the east and setting in the west. They had all the sufficient evidence of their day but still made the wrong conclusion. At one time rational men believed that the earth was flat for the same reason. At one time rational men believed that there were weapons of mass destruction in Iraq. Rational man can be wrong in their conclusions, even though one can patiently investigate and gather all the sufficient evidence available to them.

Clifford believes that because you can not prove there is a God that it is unethical to believe in him. This is a contradiction because he is biased toward this belief, so how can he be open-minded to believing otherwise. What is the sufficient evidence that proves God does not exist? Faith as defined in the dictionary is "Belief that does not rest on logical proof or material evidence." Hebrews 6 (NIV) says that "Without faith it is impossible to please God, because anyone who comes to him must believe that he exists and that he rewards those who earnestly seek him". Hebrews 11:(NIV) says "faith is being sure of what we hope for and certain of what we do not see." Neither Clifford nor anybody else in any age will ever find logical proof or material evidence that God exists because than there couldn't be faith which is required to please God.

I don't think Clifford proves that faith in God is irrational because there is insufficient evidence. This sentence is an oxymoron for faith as defined can not be proven. I believe in God not from sufficient evidence but through faith. In John 8:32 Jesus told the Jews who "believed" in him that "If you hold to my teaching, you are really my disciples. Then you will know the truth, and the truth will set you free." We will only know the truth about Jesus if we hold to his teachings. We would only hold to Jesus' teachings if we believed in him. This scripture claims that the sufficient evidence for the existence of God is holding to Christian teachings. Having done so, the believer's faith is confirmed by seeing pronounced changes and improvements in life. Without the initial seeds of faith to investigate the teachings, sufficient evidence of a changed heart and lifestyle will never be found.

Nick-Basshebeth, a Lowelite, was chief of the Three, he rode down the summitlift trail at Gunstock against eight hundred patrollers, whom he dashed in onecarve.

Next to him was Gus, son of Charlie, the Durhamite. As one of thethree mightymen, he was with the Lord when he snow shoed Mt. Major in early February. Hesang songs of praise at the summit. Though most of the snow had retreated, hestill shredded down with his board.

Next to him was Adam, son of the tuna fisherman, a Glouscesterman. Soldiersgathered at a place called Hopkinton, but Adam stood his ground in the middleof the field and finished the Boston marathon.

Such were the exploits of the Three.

On one occasion, Gus, son of Charlie, the Durhamite, and Nick-Basshebeth, theLowelite, who was chief of the Three, though not counted among the thirty,worked together and struck down twenty miles of trail including six 4000-footpeaks in steady rain.

At another time, Adam, son of a tuna fisherman, and Gus were togetherwhen theybeat down Doubleback Mountain twice in one day, smothering it with theirboards.

Rarely were the three all together, though one night, while it was still dark,the three, including the chief among them, set out with headlamps to slaughterthe Tripyramid peaks. They won easily that morning, and did pushups as avictory dance.